The South African arms deal

Terry Crawford-Browne

The South African "arms deal" has been described as "the betrayal of the struggle against apartheid" and as "the litmus test of South Africa's commitment to democracy and good governance". The scandal has become the millstone around President Thabo Mbeki's presidency.
An opinion survey conducted last yearby South Africa's leading pollster found that 62% of ANC voters want the armsdeal cancelled, 19% want it cut and only 12% support it. On no other issue, includ-ing Aids, was the government found to be so out of touch with the electorate.
    The arms deals were government-togovernment arrangements made withoutregard either for the people of South Africa or the country's security needs. They weredriven by the European armaments industries and governments. Germany wouldwin the warship contracts. Britain and Sweden would win the warplane contracts.Italy is to supply 30 helicopters.
    The Navy has been committed to ves-sels it can't use, and the Air Force to aircraft its chiefs didn't want. The latterwere overruled by the former Minister of Defence, the late Joe Modise, whorequired a "visionary approach" to favour BAe Systems and the South African state-owned armaments company, Denel.
    Even before the contracts were signed,there were allegations of corruption around Modise and his political cronies,and of kick-backs to ANC campaign funds. Whistleblowers amongst ANCintelligence operatives insisted that the arms deal was merely one aspect ofModise's efforts to transform the ANC's military wing, Umkhonto-we-Sizwe, intoa new financial elite. Inter-related transactions were said to include:

oil deals
tollroads
the Cell C cellphone contract
the Coega deep water harbour project near Port Elizabeth
smartcard technology
drug and weapons trafficking, and
diamond and money laundering

    The whistleblowers were referred to theHeath Special Investigation Unit, which found their evidence corroborated otherinquires. Judge Heath was later dismissed by President Mbeki and, similarly, a par-liamentary investigation was gutted by political interference by the executive.Another investigation headed by the Auditor General exonerated the govern-ment of "improper or unlawful conduct", yet also found that every aspect of thearms deal was riddled with tendering irregularities.
    The ANC's chief whip in parliament has been sentenced to four years' impris-onment for fraud relating to a massive discount on a Mercedes Benz 4x4. AndDeputy President Jacob Zuma is at present under suspicion that he solicited aR500,000 (#45,000) per annum bribe to quash an investigation into activities ofThomson CSF/Thales, the French armaments company.
    Normal commercial practice holds thatcontracts tainted by corruption are null and void. Organisations such as Trans-parency International find that armaments are the most corruption-prone industry.
    Given the crisis of poverty facing South Africa, the arms deal cannot be reconciledwith the EU Code of Conduct on Arms Exports whose criteria include considera-tion of socio-economic conditions in recipient countries.

Who is responsible?

Under no circumstances can European governments plead ignorance about thepoverty so prevalent in South Africa. They hide behind a rationale that since SouthAfrica is now a democracy, it would be arrogant to refuse requests for the arms exports they so aggressively promote.
    Saddam Hussein can be regarded as having been the creation of the internationalarmaments industry. President Jacques Chirac was so closely involved with Frenchweapons sales during the 1980s that he was nicknamed "Monsieur Irak". The royalyacht Britannia was reported to have doubled as a floating British armaments exhi-bition when Queen Elizabeth visited Cape Town in March 1995.
    When allegations arose that BAe Systems had paid #1 million to variousSouth African politicians as a "first success fee", they were referred for investiga-tion to the British Secretary for Trade and Industry, Stephen Byers. Byers delegatedthe task to the London Metropolitan Police who, with desultory indifference,reported back that there was insufficient evidence to pursue the matter.
    It was, however, learned that the British government was at that timeunder heavy pressure from BAe Systems to stall on ratification of the OECD Con-ventions Against Bribery of Foreign Officials. It was apparently then not illegal inBritain to bribe officials of foreign countries and, accordingly, there was no crimeto investigate!
    When Prime Minister Tony Blair visit-ed South Africa in January 1999, he was informed that church leaders were res-olutely opposed to the arms deal. The response on his behalf declared, "SouthAfrica has the right to take its own decisions on its defence requirements andsecure maximum job creation through industrial participation programmes."

A legal challenge

It is, however, one thing to smell corruption - another to prove it. With supportof church leaders, trade unionists, NGOs and other representatives of civil society,Economists Allied for Arms Reduction-- South Africa (ECAAR-SA) has takenanother approach in its litigation to cancel the arms deal.
    ECAAR is an international NGO established in 1988, and now has affili-ates in twelve countries including Britain and South Africa. Of the very distinguished economists on its board oftrustees, nine are Nobel laureates. Its purpose is to promote objective economicanalysis and appropriate action on global issues relating to peace, security and theworld economy. The Anglican Archbishop of Cape Town, Njongonkulu Ndun-gane, is a patron of ECAAR-SA.
    Almost two years ago--more than fiveyears after the arms deal saga began--and having exhausted all other remedies,ECAAR-SA filed a court application for nullification of the loan agreements thatgive effect to the transactions. It has done so as a class action suit on behalf of poorpeople in South Africa in terms of section 38 of the Constitution.
    Unbelievably, there is no parliamentary or executive authority for the armsdeal which, presumably, makes it illegal. Our litigation however, focuses upon con-stitutional arguments that public power vested in the executive and other func-tionaries must be exercised in an objectively rational manner. Action that failsthe minimum threshold of rationality is inconsistent with the requirements of theConstitution, and is therefore unlawful even if well intentioned.
    The South African constitution adopted in 1996 is regarded as being perhapsthe world's most progressive constitution for it goes beyond classical notions ofdemocratic rights. It applies to all law, and binds the executive, the legislature,the judiciary and all organs of state to include commitment to socio-economicrights. The Constitutional Court is tasked as the final arbitrator to ensure thathuman rights are upheld as the culture that holds the country together.

Strategically irrational

Firstly, the arms deal is strategically irrational: A glance at any world map con-firms that South Africa's geographic isolation makes it perhaps the country leastthreatened by foreign military invasion. Only the United States has the capacityto undertake a naval attack. The very real threat to South Africa's security is inter-nal, and relates to the crisis of poverty inherited from the apartheid era.
    Here the Constitution is instructive. It declares:
    National security must reflect the resolve of South Africans, as individuals and as anation, to live as equals, to live in peace and harmony, to be free from fear and want and toseek a better life.
    It is a commitment to human securityrelating to people--in contrast to traditional notions of military protection ofthe sovereign. Jobs, housing, education, health services, crime prevention and theenvironment are of far greater relevance to South Africans than the need to pre-vent attacks by neighbouring states.
    Nonetheless, the Minister of Healthabsurdly declares that there is no money for AIDS because South Africa must buysubmarines to deter a prospective attack by the United States. The xenophobia ofapartheid-era South Africa has, sadly, increased in the democratic era.
    Military leaders, from an unexpected perspective, recently informed parliamen-tary committees that the costs of the arms deal are financially paralysing the SANational Defence Force. There is no funding, they claim, to maintain existingequipment, let alone to undertake peacekeeping operations elsewhere in Africa. Frigates, submarines and high-tech fight-er aircraft would be quite useless for peacekeeping operations.

Economically irrational

Secondly, the arms deal is economically irrational: It is premised upon thoroughlydiscredited ideas that expenditure of R30 billion on armaments would translateinto offsets worth R110 billion to create 64,165 jobs. The arms deal was loudlytouted by government spin-doctors as a unique opportunity to fast-track industrialdevelopment and job creation.
    Offsets are prohibited in civil tradearrangements under World Trade Organisation rules because they distort marketforces. They are notoriously impossible to monitor and, accordingly, are an invita-tion to corruption. The armaments industry however, has negotiated exemptionsfrom such prohibitions by citing national security considerations.
    The Constitution, again, sets out the parameters for government procurements.They are required to be conducted "in accordance with a system which is fair,equitable, transparent, competitive and cost-effective." The arms deal dismally failsthese tests. It was as transparent as mud, wildly uncompetitive and certainly notcost-effective.
    Illustrating the irrationality of linkingeconomic development to offsets has been the bizarre saga of buying three Germansubmarines against the promise of a billion-dollar stainless steel plant. Govern-ment announcements boasted that against expenditure of R5.2 billion on three sub-marines, the offset benefits would amount to R30.3 billion to create 16,251 jobs.
    Even the most illiterate peasant knowsbetter than to fall for the arms industry patter of spend "R1 and get R6" back.Sadly, South Africa's politicians were gullible, and fell for it. The stainless steelplant failed to materialise. It morphed briefly into a condom factory to create 520jobs but this, too, has subsequently been cancelled.What is evident is that the arms deal was driven not by the needs of SouthAfricans, but by the European armaments industry. In Germany the political influ-ence of the steel industry, with former Chancellor Helmut Kohl, was para-mount, whilst in Britain the manipulative roles of BAe Systems were supreme.Even government spokesmen now concede that the job target of 64,165 jobs wasgrossly overstated. At best, perhaps 2,500 jobs might result from the arms deal, butattempts to monitor the offsets are blocked by bureaucratic insistence that the con-tracts are "commercially confidential".

Financially irrational

Thirdly, the arms deal is financially irrational: Whilst offsets drove the arms dealand induced our politicians to believe that it was "affordable", warnings about itsfinancial implications were ignored and brushed aside. An affordability study pre-sented to cabinet ministers in August 1999 in considerable detail drew their attentionto the financial risks. The study declares:
    It should be stressed that, given the uniquesize of the packages and the tenor of the associated financial agreements, the impact of thepackage expenditures will extend far beyond the procurements themselves. Any decision onthese procurements and the magnitude of their claim on the budget will inevitably also consti-tute a decision about the future level of defence spending in South Africa, hence about how thispriority weighs against government's other spending priorities.
    The ministers were warned that spending on the arms deal could crowd outsocio-economic priorities such as education, health and welfare. They were alsowarned about the foreign exchange risks.
    South Africa's currency, the rand, has ahistory of depreciation over more than 40 years. The arms deal contracts are notdenominated in rands, but in euros, sterling, Swedish krona and dollars. The armsdeal was costed at R6.25 per US$, and was publicly announced as costing R30billion. Within two years the cost escalated to R53 billion.
    Even these figures exclude finance costs, escalation costs, management feesand export credit agency premiums, all of which were withheld from public scruti-ny. No one knows what the costs will be by 2019 when the final payments are due.
    The government's financial consultants projected rand/dollar exchange rates ofR13.96 by 2010, and of R26.25 by 2019. Even on these unduly conservative projec-tions, South African taxpayers will face a foreign currency liability of about R158billion by 2010. And when the final payments are due in 2019, the costs of thearms deal are likely to have escalated to about R370 billion.
    In such a scenario, South Africa will face financial and social chaos likeArgentina or Zimbabwe. There will be no funding available for education, healthservices, housing or the socio-economic commitments contained in the Bill ofRights. South Africa's experiment with democracy will collapse.

"National security" (again)

Literally over the internet, ECAAR-SA obtained copies of the BAe Systems-Bar-clays Bank-British government-South African government loan agreements thatgives effect to the warplane contracts. These were signed by the Minister ofFinance, Trevor Manuel, on 25 January, 2000. The government's counsel conced-ed in court in March 2003 that these documents are authentic.
    The government's initial response to ECAAR-SA's application in November2001 for cancellation of the arms deal was to argue that the loan agreements standindependently of the arms deal. This illogical argument is tantamount to say-ing that the purchase of a house has nothing to do with its mortgage.
    The government's next argument was that the affordability study (of whichECAAR-SA has the executive study but not the full report) was irrelevant to theissue. Then the study itself became so highly confidential and privileged to theCabinet that its disclosure would jeopardise national security.
    In conceding in March this year that the British loan agreements are authentic,the government's counsel also drew the Court's attention to their default andpenalty clauses. The covenants and encumbrances are disastrous, and are like-ly to cripple South Africa and its people. Indeed, the loan agreements can be com-pared to the ensnarement of third world debt obligations that have brought the rest of Africa to collapse.
    The terms are such that the Minister of Finance has ceded control over SouthAfrica's economic and financial policies to European banks and governments, and tothe International Monetary Fund. Such reckless behaviour, ECAAR-SA believes,is surely unconstitutional.

The litmus test

Judgment that the agreements signed by the Minister are unconstitutional would,we assume, collapse the arms deals--it being unlikely they would continue with-out payment.
    In terms both of South African andinternational law, the Constitution takes precedence over any international agree-ments. Accordingly, judgment that the arms deal is unconstitutional will meanthat European rather than South African taxpayers will have to bear the costs ofcancellation. Hopefully, Europeans will then question why their governments areso heavily complicit in the arms trade.
    The Cape High Court in March 2003ordered the President, the Minister of Finance and the Government of theRepublic of South Africa within ten court dates to make discovery of "the documentscontaining the advice of the International Offers Negotiating Team and the Finan-cial Working Group, referred to in paragraph 36 of the answering affidavit in themain application" (ie the full affordability study that went to Cabinet in August 1999).
    Five months later ECAAR-SA has still not received those documents. We arenow preparing papers against the Minister for contempt-of-court. Regrettably,disregard of court orders has become a habit with the ANC government.
    The arms deal has truly become "the litmus test of South Africa's commitmentto democracy and good governance". The question ahead is whether the judiciarywill have courage to apply the checks-andbalances required by the Constitution.
    Failure to do so, ECAAR-SA believes, will signal to the international communi-ty that South Africa will follow countries such as Zimbabwe into chaos. It would bean appalling betrayal of people around the world who believed that commitmentto human rights would be the priority of post-apartheid South Africa.
    Success will mark a new paradigm of civil society holding governments toaccount.

Terry Crawford-Browne was an international banker who, during 1985-1990, was involved in the banking sanctions campaign against apartheid. He is now chair of Economists Allied for Arms Reduction - South Africa (ECAAR-SA) which has led civil society opposition to the arms deal.
ECAAR - South Africa 3B Alpine Mews, Box 60542, High Cape, Cape Town 8001, South Africa (+27 21 465 7423; email ecaar@icon.co.za; http://ecaar.org/za ).